Should You Buy Property Now?

The real estate market has been booming in metros such as Mumbai, Delhi and most other cities across India and many companies engaged in real estate business are planning to tap the stock market to mop up funds for expansion of their businesses. In fact, most of the developers – listed, unlisted or otherwise – are upbeat about the prospects of their business going forward and are gearing up to scale their operations and make their presence felt across segments and geographies. “The real estate market, like the stock market, had a strong rebound in Q3 and Q4 2009. The residential market in particular performed well in most cities. The global slow-down brought the focus of the developers back to quality of construction and delivery timelines. The real estate markets is very rapidly becoming ‘brand’ conscious. Developers with strong execution capability are in a position to command premium compared to other developers,” saus Berinder Sahni, Associate Director - Investment Sales, Colliers International.

However, one needs to take a closer look at how the property prices have moved in various cities, and within those cities, in the micro markets to take a call on whether or not to buy. So, let’s look at the scenario city-wise.

Mumbai
Mumbai is a ‘hot property’ when it comes to buying or selling real estate. The buyers here pay a steep premium because a residential or commercial property is a coveted asset in this ‘city of gold’. “After the great slowdown, people requiring accommodation are in the market to buy flats. Demand for budget flats is very strong. Demand for commercial space is slowly picking up. In Mumbai and Delhi, scarcity is governing the trend and hence there is a big rise in price of residential properties in prime location,” says Lalit Kumar Jain, Chairman, Kumar Builders.In about six-and-half months from October 2009 to mid-April 2010, property prices in Mumbai have risen sharply by about 15-50 per cent, depending upon the location and the amenities offered by the builder (see table: Mumbai Property Rates).Although the economic crisis of 2008 had a sobering effect on the property market, the prices still went up by about 10-15 per cent in 2008 as compared to 2007. However, the effect of economic slowdown began to tell in the first quarter of 2009, when prices declined by about 15-20 per cent almost across the city. But as the economic recovery picked up, prices began rising steadily in second half of 2009 and by April 2010, with some select areas such as Lower Parel, Mulund, Worli, etc witnessing hefty price rise of as much as 40-60 per cent as compared to 2007. Overall, real estate prices in Mumbai have gone up by about 24 per cent till April 2010 as compared to prices in 2007 (see table: Property Price Movements in Select Cities).[PAGE BREAK]

“Prices in the Mumbai and Delhi markets went up very rapidly. However, affordability in these markets versus prevailing market prices is a big concern. We believe that these markets will soon have pricing corrections. Volumes in Q1’2010 in Mumbai and Delhi dropped compared to Q3’09 and Q4’09 due to price escalation. While the demand is robust in the mid-income housing, most developers have been focusing on premium housing because of higher margins,” says Sahni.

“It’s the micro market condition which should determine (buying decision). If there is a better opportunity elsewhere with potential of better appreciation, then one can opt for it,” advises Jain. Buyers and investors may be advised to wait for correction and then enter the market.

Delhi & NCR
Delhi and the National Capital Region (NCR) comprising Gurgaon and Noida too have witnessed sharp rise in prices in most of the micro markets. As in the case of Mumbai, rising demand for residential and commercial property in Delhi and NCR regions have driven the property prices quite high. The October 2010 Commonwealth Games in New Delhi have proved to be a big trigger for real estate in Delhi and NCR region. Further, new Metro links have provided boost to property prices in the city and NCR. All this infrastructure build-up has seen and will continue to see appreciation in property prices in these areas.

The prices in areas such as Dakshinpuri, Hari Nagar, Jehangir Puri, Jhilmil Colony, Sangam Vihar, etc. had remained stable till second half of 2008, but the year 2009 saw the prices zooming by as much as 50-70 per cent over 2007 prices. Other areas such as South Extension, Safdarjung Enclave, Mayur Vihar, Dwarka, Pitampura, Govind Puri, Raghubir Nagar, Dilshad Garden, etc have seen appreciation of 30-40 per cent over 2007 prices. In fact, property prices in these areas have corrected since second half of 2008, when the prices had soared 40-60 per cent over 2007 prices. Overall, New Delhi saw appreciation of 21 per cent in first half of 2009 as compared to 2007 and the prices have gone up further by about 10 per cent in the second half of 2009. The end-users can buy a home now as the prices are expected to go up further due to the ensuing Commonwealth Games. As for investors, they too can enter and make decent profits in about a year’s time.[PAGE BREAK]

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Kolkata
Property prices in Kolkata too remained firm through the period of economic crisis and, in certain micro markets, actually rose during the period. In fact, prices in certain areas have risen stiffly and, as a result, the NHB Residex has shot up from 114 in first half of 2008 to 140 in second half of the same year, an increase of 26 points. The momentum continued in the first half of 2009 with the Rapidex soaring further to 159 points, which means that property prices in Kolkata had risen by a whopping 59 per cent in about a year-and half since 2007. After the rally, realty prices have remained stable in the second half of 2009.

The areas which have seen maximum appreciation were Ultadanga, Maniktala, Bhawanipur, Alipur, Jodhpur Park, Dhakuria, Jadavpur, Thakurpukur, Sorsona, Salt Lake City, Lake Town, etc where the prices rose 60-100 per cent in first half of 2009 as compared to 2007 prices. Since the prices have already appreciated quite a lot, it is advisable to wait for the prices to correct and then decide on buying/investing.

Bengaluru
Bengaluru, the Silicon Valley of India, was the most affected due to the sharp drop in demand for residential and commercial spaces caused by the global economic crisis. The lag effect of the global economic crisis which began in late 2007 and continued till end-2008 saw prices of residential and commercial spaces declining sharply in 2008 as well as 2009. The movement of NHB Residex suggests that as com-pared to 2007, residential properties were available at a discount of 25 to 30 per cent in 2008 while the drop in prices got accentuated further with the discount over 2007 prices rising steeply to 40-45 per cent in the first half of 2009.

However, the fall in property prices was arrested in second half of 2009 as prices began to stabilize. “The real estate market has considerably improved over the last 2 quarters with increase in the number of transactions. Prices however have been stable and for properties nearing completion there has been hardening of values. This is common for all the markets in Bengaluru, Hyderabad, Chennai and Kochi. Demand for commercial properties particularly in Bengaluru have shown significant improvement. With the revival of the IT sector we find that the positive impact will be felt across all markets,” says Swaroop Anish, Sr. Vice President – Business Development, Prestige Estates Projects. As for affordability, Swaroop says “The prices at which properties are available today are very reasonable. A simple exercise computing today’s cost of land and construction will further reinforce this. Simply put, these properties are not replaceable at the current values they are being offered at.”[PAGE BREAK]

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Hence, one can say that this may be the ideal time to buy or invest in residential and commercial properties in Bengaluru to get that dream home at reasonable rate or reap rich returns on investment.

Hyderabad
As with Bengaluru, Hyderabad too faced the brunt of global economic slowdown due to its IT and ITeS-focussed development. Hyderabad witnessed a minor correction of about 5-10 per cent in residential property prices during 2008 as compared to prices in 2007. However, property prices tumbled sharply in the first half of 2009, with the Residex declining to 65 points, indicating a steep discount of 35 per cent over property prices in 2007. However, following the footsteps of Bengaluru, property prices have stabilized in second half of 2009 as the recovery in IT industry is expected to renew the demand for residential and commercial space from IT professionals and IT companies, respectively. The IT revival will witness an upward trend in property prices once again going forward. Hence, this may be the right time to buy residential units for self-use at a reasonable price or invest in residential and commercial properties in Hyderabad to earn handsome returns on investment.

Chennai
The Chennai property market too felt the aftershocks of the economic slowdown and the consequent IT downturn. The fall in demand from IT professional for residential properties and IT companies for office space saw property prices correcting in the second half of 2008 in areas such as Tondiarpet, Anna Nagar, Kilpauk, Nungambakkam, Chetpet, Egmore, Guindy, Chromepet, Mylapore, Adyar, Vedacherry, etc. The fall in prices in these areas ranged from 10-30 per cent as compared to prices in 2007. However, prices in areas such as Dr Radhakrishnan Nagar, Ayanavaram, Purasawalkam, Kolathur, Ashok Nagar, Thiagaraja Nagar, etc remained firm despite slowdown and in fact appreciated through 2008, while correcting marginally in first half of 2009 as compared to 2007. Property prices have stabilised in the second half of 2009 and with revival in demand expected from IT professionals and companies, one can expect prices to show an upward trend going forward[PAGE BREAK]

Buy/Invest Selectively
From the above discussion, it is obvious that buying or investing in residential or commercial in Mumbai, Delhi or Kolkata would not be a prudent thing to do at this point in time. As against this, Bengaluru, Chennai and Hyderabad present an excellent opportunity for buying or investing in real estate today.